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An industry has five firms. Each of four firms has a market share of 22 percent...

An industry has five firms. Each of four firms has a market share of 22 percent and the last firm has a market share of 12 percent. Calculate the Herfindahl index and four-firm concentration ratio for the industry

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Answer #1

An industry has five firms. Each of four firms has a market share of 22 percent and the last firm has a market share of 12 percent. Calculate the Herfindahl index and four-firm concentration ratio for the industry.

Herfindahl index is the sum of squares of market shares.

Herfindahl index = (22)^2 + (22)^2 + (22)^2 + (22)^2 + (12)^2

Herfindahl index = 2080

Four-firm concentration ratio

Firms

Share

1

22%

2

22%

3

22%

4

22%

5

12%

Total

100%

Concentration Ratio

= Share of Firm 1 + Share of Firm 2 + Share of Firm 3 + Share of Firm 4 ÷ Total

= 22% + 22% + 22% + 22% ÷ 100%

= 88% ÷ 100% = 0.88

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